Why doesn't the Middle East shop online?

With a growing population and high smartphone penetration, online retail has been slow to take off in the Middle East and North Africa. What's behind the region's slow adoption of ecommerce, and how can it be changed?
Written by Damian Radcliffe, Contributor

Ecommerce is a multibillion dollar business. In the past decade and a half it has changed not just what we do but also how we do it, as companies like eBay, Amazon, and Uber have created new consumer behaviours and global markets.

In the US, online now accounts for nine percent of retail sales, up from around one percent at the start of the millennium, resulting in Amazon's market value recently surpassing Walmart's for the first time. Meanwhile, China is now home to six of the twenty largest internet companies in the world; many of them - like Alibaba and the B2C retailer JD.com - have their roots in ecommerce.

The Middle East has not been immune to this phenomenon. A 2013 report from IMRG identified MENA as the world's fastest growing region, while another 2013 study from PayPal predicted that the Middle East's online commerce market will reach $15bn by 2015.

Much of this charge is being led by new companies such as Souq.com and the region's myriad of national airlines, with country-specific websites also playing a role.

10 barriers to success

However, despite substantial growth in the Middle East over the past couple of years the region is still behind a number of other emerging economies in the ecommerce stakes. The reasons behind this include:

Delivery challenges: In a region with no postcodes, and often no home postal service, getting items to consumers can be a major headache for businesses.

Lack of online presence: Although the Middle East is home to large numbers of SMEs, the majority of them don't have a website and no intention of getting one. Even larger multinational organisations, like the French retailer Carrefour, have a very limited online presence in the region and seldom offer online retail services.

A preference for face-to-face: Social and cultural dimensions remain important for Middle East consumers, including the region's digital natives. Subsequently many people still prefer to buy in person, where they can negotiate and draw on long-term business relationships; dynamics which are seldom possible in the same way online.

Lack of choice: The lack of online presence and preference for face-to-face transactions can combine to result in a limited range of online products and services. This, in turn, further discourages ecommerce activity.

No price differential: Online prices in the region are often the same as they are in store, thereby robbing consumers of a key financial driver for shopping online. As a result, showrooming - whereby consumers look at items in store and then go home and purchase them more cheaply online - tends to happen in reverse in the region.

Lots of ecommerce happens under the radar: In the Gulf region there's a whole cottage industry of outlets, often women acting independently, selling fashion items or food via Instagram or WhatsApp. With such activity untracked and unregulated, the true size of ecommerce in the region is certainly understated.

Privacy concerns: Online users in the MENA region are deeply concerned about their personal or credit card details being stolen or misused, although there's little evidence to suggest that many people have been affected by online fraud.

Prevalence of cash on delivery: COD remains the leading method of payment for ecommerce in the region, due to security concerns, especially with smaller retailers. This makes ecommerce highly inefficient and no doubt disincentivises some entrants.

Preference for local sites: Mastercard found that just over half of online consumers prefer local websites, making it hard for international companies to make headway. Trust issues, concerns about fake websites, and the quality of goods can all be barriers to entry, although major players like Amazon do have a footprint in the region.

Payment platforms: PayPal has little traction in MENA and even local online payment solutions like PayFort have struggled to over consumer concerns and preferences for paying by cash.

Five solutions

Ecommerce is growing in the region, although much of this is dominated by major verticals such as travel (flights), tourism (hotels), and electronics.

There are a number of ways governments and businesses can help to grow this emerging ecosystem.

Improving the user experience: Startups like Fetchr are addressing concerns such as unreliable deliveries, while both new and existing channels need to continue to address issues such as the range and price of products available.

Government action: Governments in the region, which are actively trying to promote ecommerce, can help to facilitate growth by training online users, kitemarking sites and promoting online payments for government services. The latter will encourage ecommerce-like behaviours, which may help to remove consumer fears and encourage citizens and residents to adopt the ecommerce habit.

Leap straight to mobile: In the Gulf region - where smartphone penetration is among the highest in the world - government agencies and businesses should target mobile commerce. Over 40 percent of ecommerce sales in nearby India are conducted via mobile, with 33 percent in China and 20 percent in Brazil. These numbers demonstrate the potential in emerging markets with a heavy mobile concentration.

Support SMEs to make the digital transition: Companies like Google and SAP are already doing this, but more large-scale efforts will be needed.

Harness social media: Internet users in the region are active social networkers. Users already trust these networks and frequently access them on their mobiles, so capitalising on this love affair through 'click to buy' technology, may be one way to help encourage a step-change in ecommerce activity.

Online retail is already an established part of many people's lives in the region; with many nationals and expats engaging in online commerce when overseas or in their home countries. However, until these types of opportunities are replicated across the region, ecommerce will continue to fail to deliver its full potential for some time to come.

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